I. THE VALUATION
I.1 Regulatory Framework
| a) Is there a legal framework in your Member State for the valuation of real estate for lending purposes (loan origination)? If yes: • Is this framework specifically for the valuation of real estate for lending purposes or are provisions enshrined in a broader piece of legislation? • Is it limited to the transposition of European or International Standards or is it broader in nature? • Please provide references and indicate whether it applies to both residential and commercial property. If there are differences between both property types, please explain. |
The Danish Financial Supervisory Authority (DFSA) has issued detailed valuation standards specifically for the valuation of real estate for lending purposes in the Executive Order on Valuation of Mortgages and Loans in Real Property which are Provided as Collateral for the Issue of Covered Mortgage-Credit Bonds and Covered Bonds” (The Valuation Order) . The Order transposes and elaborates the European International Standards. The Order apply to all types of properties. and apply to both residential and commercial property and differs only for specific types of commercial property. |
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| b) If there is no specific legal framework, is the valuation of real estate for lending purposes covered by other means, e.g. self-regulation, sector recommendations or supervisory guidance? | N/A |
| c) Do national valuation standards exist? Is there any cross-reference to European and/or International Valuation Standards (EVS/IVS)? | The Valuation Order transposes and elaborates the EBA guidelines and International standards but without any explicit references. |
| d) How has the regulator in your Member State transposed Article 19(1) of the MCD regarding “reliable standards” for the valuation of residential property (into legislation or delivered through a professional body)? Indicate whether and how “reliable standards” are defined and whether and how the content of those standards are prescribed. | The DFSA has transposed the MCD in the Executive order on good practice for home credit: "When granting mortgage credit agreements, a mortgage creditor must apply reliable standards in the valuation of the real property underlying the mortgage credit agreement. In addition, the lender must ensure that reliable standards are applied when third parties perform the valuation on behalf of the lender. Reliable standards are the rules set out in section 2 of Executive order on valuation of mortgages and loans secured on real estate as collateral for issuance of covered bonds" |
I.2 Valuation Bases & Methodology
| a) What valuation bases (Market Value, Mortgage Lending Value, etc.) are typically used in your Member State for the valuation of property for lending purposes (please disregard at this stage the specific requirements of Art. 229 CRR considering that the Property Value is not an independent basis of value). | Market value |
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| b) Based on what definition? Please provide the definition and reference to where it can be located. | The Danish Valuation Order states: "The institution's assessment of the value of the pledge must not exceed the reasonable cash market value of the property (market value) regardless of whether the property was sold at a higher amount. The reasonable cash market value of the property is defined as the estimated amount for which the property can be traded at the date of valuation by an independent transaction between an interested buyer and an interested seller under normal market conditions, each of which has acted on a well-informed basis, with caution and without compulsion. If the conditions are considered to make a special scarcity price, the institution must disregard this when measuring the valuation. The institution shall take into account when valuation to a current risk of changes in market conditions or structural changes. For valuation purposes, the institution shall include relevant comparable references. |
| c) In case other valuation bases are used in your Member State for the valuation of property for lending purposes, please specify the effect, if any, on the final valuation. | N/A |
| d) Depending on the valuation base used, which valuation approaches or methods (comparison, income, cost, etc.) are typically applied in your Member State to value properties for lending purposes in each category? |
The comparison method is used for private residential properties and agricul tural properties . According to the Valuation Order the valuation of most types of commercial properties (residential rental properties included), the investment value is used for lending purposes . The investment value is derived from the capitalisation of the net rentals . The basis for the calculation is primarily the actual rent or the market rent, depending on which is lowest, calculated on an annual basis . The depreciated replacement cost method can only be used for proper ties that are never or rarely sold in the market and, according to the DFSA guidelines, this method can only be used for very limited types of properties |
I.3 Valuation Report: Form & Content
| a) Does the legal or professional framework in your Member State specific to the valuation of properties provide minimum requirements in terms of the form and content of the valuation report? If yes, please indicate what these minimum requirements are. | There are no formal requirements in terms of the form of the valuation report, hence the form will differ between lenders . As for the content, the requirements are stated in the Valuation Order, section 29 . The terms under which the valuation has been carried out must be stated and justified, references to recent comparable sales/rents are mandatory and the reason for the assessment of the annual costs of property maintenance must be stated in the valuation.For commercial properties, the applied parameters for calculating the investment value must be documented e .g . it is mandatory to state the floor area and estimated market rent per square meter, respectively, for each of the categories of premises in the property . The same applies if possible for the actual rent per square meter |
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| b) Should the form and content of valuation reports be prescribed, are there differences between residential and non-residential properties? Please describe as appropriate. | N/A |
| c) If the form or content of the valuation report are not prescribed, what form does the valuation report typically take? Please specify differences between residential and commercial property valuation reports. | N/A |
I.4 Technology & Valuation
| a) Does the legal or professional framework in your Member State provide specific rules/guidance on the use of digital valuation tools (AVMs, Artificial Intelligence etc.)? If yes, what does this consist of and is it restricted to a particular type of property? Please specify whether there is a correlation with the requirements of Article 208(3a) CRR and of section 7.4 of GLOAM or whether the latter provisions are of stand-alone application in your Member State. |
Mortgage banks can only use AVMs for loan origination if they get approval from the DFSA . Most Danish mortgage banks have received approval to use own models for private residential properties but the precise basis of the mortgage banks’ application and the authorisation given have not been published . |
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| b) For what purpose are digital tools and/or AI employed in your Member State? - Mortgage origination, monitoring and review of property values, revaluation etc. - Capital requirements, covered bond funding, securitisation transactions, mortgage portfolio risk management etc. |
AVMs can be used for all the mentioned purposes |
| c) Scope of digitisation: Please determine the scope of automated and digitised tools in your Member State. Are they confined to data collection, do they deliver reliable property values or are they even used to produce full or partial valuation reports including description of locations, infrastructure, building characteristics etc.? If the latter is the case, is internal data used or it is permitted to purchase data from an external data provider? | As the AVM applications of the Danish mortgage banksand the authorisation given have not been published it is not possible to give general answers. |
| d) Quality requirements: How are the reliability of the tools and their outputs assessed, e.g. by controlling the inputs, back-testing, supervision and/or plausibility checks by valuers etc.? | The banks follow in line with paragraph 210 in the EBA guidelines the precribed a plausibility check by the valuer before a model value is applied. |
| e) Do you foresee an increase in the use of automation and digitisation of property valuation processes in the future? Please describe potential technological developments which could impact the valuation profession and accelerate its transformation, notably through the use of AI. | Due to model improvements, including use of AI, it is likely that a larger portion of valuations than present will be done using AVMs |
I.5 ESG, climate risk, transformation risk
| a) How are ESG factors and climate risk taken into consideration in the valuation process? Do Market Values and/or Mortgage Lending Values reflect the ESG characteristics of properties? | ESG factors including energy consumption and climate risks are considered to the extent the market particiåpants in the local market attach importance to it as it can be seen in the comparable sales prices and rents for properties with and without the ESG factors present/partly present |
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| b) Are there rules in your Member State requiring assessment of EU Taxonomy alignment of a property in the valuation report and the subsequent impact of compliance/non-compliance on property values? | No |
| c) Are digitised tools and AI applied in order to capture and/or measure the impact of ESG factors and climate risk on property values? | Yes, digital tools and geospatial data are use to identify to what extent the assessed properties are exposed to climate risks |
I.6 Market Initiatives
| a) Please describe any market initiatives which have been undertaken in your Member State (including cross border initiatives) and which have promoted market best practices and/or transparency of valuation practices. | No market initiativs have been identified |
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II. THE VALUER
II.1 Regulatory Framework
| a) Is property valuation a regulated profession in your Member State (through legal, regulatory or statutory rules)? | No, but CRR article 229 (1a) and section 7.3. in the EBA guidelines on loan origination and monitoring apply for Danish mortgage lending |
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| b) Is the use of the title of valuer protected in your Member State? If yes, by whom? |
In general no, but “DiplomValuar” and “Diplom i Vurdering” are protected titles for persons with these qualifications provided by the Danish Association of Chartered Estate Agents and recognised by the Danish authorities . A number of Danish valuers have the protected title Member of the Royal Institution of Chartered Surveyors (MRICS) |
| c) If the title of valuer is not protected in your Member State, how do lenders ensure that they work with ‘qualified’ valuers? Are there ‘professional’ certifications for property valuers in your Member State? If yes, please name them. |
The requirement for the valuer to be independent and have the necessary qualifications, ability and experience to execute the valutation in CRR article 229 (1a)applies. Furtheremore, section 7.3. in the EBA guidelines on loan origination and monitoring apply for mortgage lending. Banks will do different quality controls. The Danish Valuation Order precribes control of external valuations: "The institution must perform a prior to execution regular and thorough spot checks with inspection of an appropriate share of the external valuations based on assessment reports." |
| d) Is the regulatory or professional framework the same for all valuers, whether they value residential and/or commercial property? Or are there differences? Please describe as appropriate. | The regulary framework is the same |
II.2 Qualification and Independence
| a) The qualified valuer • How has the regulator in your Member State transposed the requirements of Article 19(2) of the MCD, of Articles 229(1) and 208(3b) of the CRR regarding the instruction of “professionally competent valuers” or valuers who possess the “necessary qualifications, ability and experience” (transposition through legislation or by self-regulation)? Indicate how professional competence and qualification requirements are prescribed. |
The mentioned articles apply for Danish mortgage lenders althout the articles are not reproduced in the Danish regulationm. Banks apply extenjsive internal traning of valuers. The DFSA frequently performs random sample checks hereby controlling that the valuers possess the necessary qualifications, ability and experience |
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| a) The qualified valuer • If professional competence, qualification, ability and experience requirements are not prescribed, what is general practice with regard to professional qualifications? |
N/A |
| b) The independent valuer • How has the regulator in your Member State transposed the provision in Article 19(2) of the MCD or in Articles 229(1) and 208(3)(b) of the CRR regarding “sufficient independence from the credit underwriting process” or “independence from the loan processing and loan decision process” (through legislation or delivered through self-regulation)? Indicate whether and how the requirement is defined and whether and how it is prescribed. |
The Danish regulation precribnes tht bankas must establish independent and regular internal controls to ensure segregation of duties and adequate valuations. During frequent inspections, the Danish FSA will assess whether sufficient segregation of duties is present or not and if the valuations are biased or subject to undue pressure . |
| b) The independent valuer • If “sufficient independence” is not prescribed, what is general practice to ensure the valuer is unbiased and not subject to undue pressure? |
N/A |
II.3 External vs. Internal
| a) Does the legal or professional framework in your Member State specific to the valuation of property for lending purposes lay down rules for banks and lenders as to whom they may use to value properties? • If yes, do credit institutions have the possibility to employ both internal and external valuers? • Is one type of valuer typically employed more frequently than the other? |
Valuers may be either internal (employed in a mortgage bank) or external to the lending institution . However, there is a long tradition in Denmark that the individuals carrying out property valuations in connection with mortgage lending are employed by the lending mortgage bank . The mortgage banks consider that valuation is an integral part of the lending process, for which the manage ment of the mortgage bank is responsible . External valuers are primarily used for valuation of private residential properties and are mostly real estate agents specialised in valuation with supplementary education . In order to use external valuers the mortgage bank with covered bond funding must give detailed valuation instructions and must carry out regular and thorough random sample checks by inspecting an appropriate percentage of the external valuations . |
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| b) If there is/are no legislation/rules regarding the use of external and internal valuers, what is typical practice? |
II.4 Professional Indemnity Insurance
| a) Does the legal or professional framework in your Member State specific to the valuation of property for lending purposes require: • Valuers to have professional indemnity insurance cover? • Lenders to use only valuers covered by professional indemnity insurance? |
Internal valuers do not have insurance covering errors in valuations . Such errors are the risk of the mortgage banks as employer . Due to the conditions for lenders with covered bond funding using external valuers, questions are very seldom raised regarding indemnity between the mortgage bank and the external valuer . External valuers are under no obligation to have insurance covering the risk of errors made in connection with the valuation task . In the agreement between the mortgage bank and the valuer, insurance may be requested but it is not usual practice . Estate agents are legally obliged to have indemnity insurance in relation to their purchasing and selling activities . However, the insurance only covers estate agent valuations ordered directly by the consumer, and not valuations ordered by professionals including mortgage banks . There is no legislation which determines exactly what the valuer is responsible for vis-à-vis his client . However, the valuer can be liable according to general Tort Law and based on the contract between the lender and the valuer regarding the valuation . There is however a special regulation regarding estate agents’ liability |
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| b) If there are no such requirements, how are lenders/valuers covered for the risk? • Is/are there legislation/rules in your Member State determining the responsibility of the valuer vis-à-vis his client? If yes, please describe the legislation/rules and the responsibility of the valuer. |
See the answer to question above |
III. VALUATION & CAPITAL REQUIREMENT
| a) Property Value How are the Property Value requirements of Article 229(1) CRR transposed in your Member State: • by calculating the Mortgage Lending Value • by Market Value adjustments ◦ adjustments determined by the valuer on a single property by property basis ◦ adjustments determined by the credit institution on a portfolio level based on internal historic market data series ◦ adjustments determined by the credit institution on a portfolio level based on data provided by external research institutes or data providers |
By the use of market values adjusted by the banks on a sub-portefolio level based on internal historic market data series. |
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| b) Monitoring of property values Has the regulator in your Member State laid down criteria regarding "more frequent monitoring where the market is subject to significant changes in conditions"? |
No, the DFSA has not published any interpretations |
| b) Monitoring of property values Has the regulator in your Member State laid down criteria regarding “advanced statistical or other mathematical methods” complying with the technical requirements of Article 208(3a) CRR? |
No, the DFSA has not published any interpretations |
| b) Monitoring of property values Please provide an overview of the different statistical methods/tools complying with Article 208(3a) CRR applied by lenders in practice. |
Signs of declining market values are identified by regular monitoring using updated published statistics and the banks knowledge of recent trends in local sales prices and rents per sqare meter for the different property segments |
| c) Review of property values and revaluation • Has the regulator in your Member State laid down criteria which define “review” of the property valuation? If so, what are the minimum and maximum periods within which a review must be conducted? Based on which criteria? |
The DFSA precribes yearly revaluation if the LTV is above defined limits |
| c) Review of property values and revaluation • Has the regulator in your Member State laid down criteria which define “material decline relative to general market prices”? How are ESG-related considerations assessed as an indicator for a material decline? |
No |
| c) Review of property values and revaluation • Please provide a description of how ‘reviews’ are carried out in your Member State, e.g. by a new full-size valuation report, a desk-top valuation, a valuation certificate, a plausibility assessment or alike. What criteria are used to determine how the reviews are to be carried out? |
In general a desktop valuation is used which for investment property normally will require new informaation of the the rental income (rental lists). I certain circumstanses an inspection of the property is undertaken. The Danish mortgage institutions have their own business procedures. |
| c) Review of property values and revaluation • For the calculation of average values in accordance with Article 229 (1)(e) CRR in the context of upward revisions of values, are there any guidelines from regulators or lenders addressing the data points to be used and the comparability of properties? Please indicate whether there are requirements from regulators or lenders for ‘sufficient data’ and ‘unequivocal increases of value’. |
No, the DFSA has not published any interpretations |
IV. VALUATION OF THE COVER POOL
| a) Are valuation rules for cover assets provided at national level in accordance with Article 6(5a) CBD? Are they provided by national covered bond legislation or by professional guidance/standards? | Yes, the valuation rules are entailed in the Dansih Valuation Order issued by the DFSA |
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| b) What valuation bases apply for the valuation of cover assets (Market Value, Mortgage Lending Value)? | Market value |
| c) In the case of Market Value valuations, are there any prudential or longer term/sustainable features of the property to be considered? If yes, to what extend? |
The Valuation Order precribes that banks must apply prudent/cautious values, disregard scarcity prices and take a current risk of changes in market conditions or structural changes into consideration. |
| d) How is the requirement that the valuation shall be carried out by a valuer who possesses the necessary qualifications, ability and experience transposed in your Member State (Article 6(5b) CBD)? Are there specific qualification requirements for valuers? | The answer to question 2.2. a) applies.The requirements are the same as for lending based on covered bond funding |
| e) How is the requirement that the valuer shall be independent from the credit decision process transposed in your Member State (Article 6(5c) CBD)? | The answer to question 2.2. b) applies. The requirements are the same as for lending based on covered bond funding |
| f) Are there differences in valuation rules and/or qualification requirements with regard to the property type (residential vs. commercial properties) or to the loan amount? | The valuation rules and requirements are the same but the lendig limts differs |
| g) Are there specific monitoring, review and revaluation requirements for cover pool assets at national level (see Article 129(3) CRR referring to Article 208 CRR)? | No |
| h) Do regulators of your Member State provide a waiver from the limitation of calculating average values for cover assets in case of upward revision of values (Article 129(3) second subpar. CRR)? | Yes |
V. OTHER
REGULATORY HARMONISATION AND NATIONAL DIVERGENCES
| 1. What challenges does your Member State face in harmonising with EU regulations (e.g. legal, technical, market-related)? | Not aware of the challenges faced by the individual banks |
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DATA QUALITY, TRANSPARENCY AND COMPARABILITY
| a) What data sources are typically used by valuers in your Member State, and to what extent do they comply with Article 208(3a) of the CRR? | Public registers are the main data source to ensure compliance with Article 208(3a) of the CRR. |
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| b) What measures have been taken to improve transparency and comparability of valuation data within your Member State? |
The Banks valuation data are not shared and will probably not be shared in the future. Some private data providers collects information on rents in new contracts and collects sales prospectuses and compares the data with the final sales price to calculate the yield. Banks purchases access to these databases to enable better valuation of commercial property. |
| c) Is there a central database or platform for sharing valuation data in your Member State? | No |
EDUCATION, TALENT PIPELINE AND PROFESSIONAL DEVELOPMENT
| a) What training programs or continuing education opportunities are available for property valuers in your Member State? | Courses and traning will primarily be undertaken by the banks themselves. Furthermore, several specific cources are provided by The Danish Association of Real Estate Agents and the Danish Asssociation og Investment Property Owners |
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| b) Is there collaboration between universities, professional bodies, and regulators to ensure a sustainable pipeline of qualified valuers? | To some extent there is collaboration between universities and banks to ensure qualified valuers |
| c) How does the EU regulatory environment influence the development and attractiveness of the valuation profession? | The regulatory requirements might affect recuitement adversely |
FUTURE TECHNOLOGICAL AND REGULATORY DIRECTIONS
| 1. What technological developments are expected to impact valuation processes in your Member State over the next five years? | The continuing improvement of databases, including databasess on yields and rents, and the technical developments, including the use of AI, will affect the valuation processes. |
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